Bosses warn PM over Banks split

Exclusive: Bosses Warn PM Over Banks Split

• 
  
• 
  
• S
  

Share the post



Exclusive: Bosses Warn PM Over Banks Split

• 
  Delicious
  
• 
  Newsvine
  
• Digg
  
• 
  Facebook
  
• 
  Google Bookmarks
  
• Live
  
• Mixx
  
• 
  MySpace
  
• 
  Reddit
  
• 
  Stumble Upon
  
• 
  Technorati
  
• 
  Twitter
  
• Yahoo
  Bookmarks
  
• 
  Yahoo MyWeb
  

Mark
Kleinman July 29, 2011 8:36 PM

• Recommend post (2)
  

The heads of some of Britain's biggest companies have warned David Cameron
that they will scale back their relationship with UK banks if a plan to enforce
a partial break-up of their operations is implemented.

I can reveal that the Prime Minister and George Osborne, the Chancellor, were
told by the chairmen of companies including BP and Rio Tinto this week that a
proposal to impose a form of ring-fencing upon the banks was badly
thought-through and was likely to prove economically destructive.

The warning came on Monday at a meeting in Downing Street of the
Multinational Chairman's Group, an informal collective of senior company bosses
set up to discuss business issues.

I'm told that among those attending the meeting were: Jan du Plessis,
chairman of Rio Tinto, the miner; Douglas Flint, chairman of HSBC; Carl-Henric
Svanberg of BP; Michael Treschow, Unilever chairman; and Jorma Ollila, the Finn
who chairs Royal Dutch Shell.

People familiar with the discussion say that the warning about the potential
impact of bank ring-fencing was made repeatedly by the businessmen who
attended.

They raised concerns that implementing a ring-fenced structure on a
unilateral basis (no other country with a substantial banking industry is doing
the same thing) would increase the cost to them of being customers of those
banks.

And they said they would have little choice but to review the amount of
business they did with UK lenders if the costs made them uncompetitive.

It's arguably the most important economic opposition to bank ring-fencing so
far. That said, the cost to the economy of the banking crash of 2008 was vastly
greater than a few billion pounds added to the cost-base of a handful of British
banks.

In that respect, the chairmen's warning may not yield much in the way of a
political outcome - and many of you would say that that was correct.

I'm told that Mr Cameron was surprised by the emphatic nature of the
chairmen's warning, and that Mr Osborne asked those attending whether they had
been "put up" to the protest by the big banks (among them HSBC, which was
represented by Flint). I'm also told that the response was that they had
not.

To recap, the Chancellor made a crucial decision in his Mansion House speech
last month to back a ring-fenced model for banks such as Barclays, HSBC and
Royal Bank of Scotland.

That followed April's interim report by the Independent Commission on Banking
(ICB), which was set up last year to identify ways of making the UK banking
system less prone to collapse and less likely to rely on taxpayers to rescue it
in the event of a future crisis.

Mr Osborne's endorsement of the proposal was contentious in that the ICB has
yet to define how the ring-fencing structure will work. It will make its final
recommendations in a report in September.

The warning sounded by the company chairmen will undoubtedly have set alarm
bells ringing in Downing Street.

By my calculation, those attending head companies worth about 30 per cent of
the total value of the FTSE 100 index; along with those members of the group who
weren't at the meeting (including AstraZeneca, British American Tobacco, Diageo,
GlaxoSmithKline and Vodafone), they are valued collectively by the stock market
at several hundred billion pounds.

So the warning is a serious one for the Chancellor and the PM to heed in a
week when the latest economic growth figures demonstrated how narrowly Britain
is managing to remain out of recession.

Although Cabinet ministers have said often since the general election that
their aim of rebalancing the economy would be better achieved by growing sectors
such as manufacturing than by shrinking financial services, the latter route
remains possible.

Nor is this group of influential chairmen the only body of stakeholders who
have warned about the impact of the ICB's proposals.

The most self-interested of those, clearly, is the banks themselves. They've
warned that separating their operations in the way suggested by the ICB will
cost them billions of pounds and force them to charge customers more for their
services.

Major bank investors have also made similar comments, arguing that the UK
banking sector is becoming "uninvestable" because of regulatory reforms being
pursued by the Coalition.

Since the ICB interim report, the big banks have been lobbying to limit the
impact of the changes, and may win a partial victory in that the scale and
timetable of ring-fencing are still undetermined.

There's also an important political context here. Mr Osborne's support of
ring-fencing has left him with little room for manoeuvre ahead of the ICB's
final report.

Yet this week, Vince Cable, the Business Secretary, urged the ICB to provide
solid evidence that ring-fencing is the optimal way to make UK banks safer.
Otherwise, he said, his preference for a full break-up of the banks' retail and
investment banking arms should continue to be pursued.

None of the companies represented at Monday's meeting would comment. Number
Ten and the Treasury did not return calls seeking comment.

Cameron


=================================

So yet again the Banks, not Government dictate Policy, we wouldn"t have had to spend billions bailing out Northern Rock and RBS if the Banks
had behaved responsibly